Mexico City, Apr. 25 - Mexico's government renewed a deal with retailers and producers Wednesday to cap prices of the food staple tortilla to control inflation and prevent millions of Mexicans from going hungry.
Prices for corn, the main ingredient in tortillas, surged in January to their highest level in a decade on increased demand for the grain from U.S. ethanol fuel producers.
Many retailers agreed to keep tortilla prices at 8.50 pesos ($0.77) per kilogram, with key producers committing to hold the price of corn flour at 5 pesos per kilogram, Economy Minister Eduardo Sojo told reporters.
According to the World Bank, almost one in five Mexicans do not have enough income to meet their minimum nutritional needs, making rises in tortilla prices a hefty burden.
"Today we renew our economic and social policy to protect poor Mexicans," Development Minister Beatriz Zavala said.
Wednesday's deal extended an accord from January that helped dampen an inflation spike but was set to expire on April 30.
Most Mexicans eat tortillas on a daily basis and Mexico is widely considered the birthplace of corn. But the country imports millions of tonnes from the United States every year.
The renewed accord, which includes Wal-Mart de Mexico , bread maker Bimbo, corn flour producer Gruma and other companies, will last until Aug. 15.
"The government, federal agencies ... and retailers reiterate that the market can handle a stable price for tortillas," Sojo said.
Mexico's peso and bonds gained on news the deal would be renewed as investors bet inflation would become less of a threat.
INFLATION IMPROVING
While Mexico cannot directly fix corn or tortilla prices, the government has tried hard to persuade companies to sell their products cheaper.
Mexican consumer prices fell an unexpected 0.21 percent in the first half of April, bringing 12-month inflation back below the central bank's 4-percent danger zone and reducing chances of interest rate hikes.
The bank has urged the government to continue the tortilla price caps that have acted as a buffer against inflation.
In January, tens of thousands of Mexicans marched in protest against rising tortilla prices, many accusing conservative President Felipe Calderon of failing to protect them from foreign market forces.
The government says unscrupulous players in the industry have used high corn prices as an excuse to overcharge.
Agriculture Minister Alberto Cardenas said farmers could produce up to 15 percent more corn this year, raising his estimate from 10 percent growth.
He also said areas planted with corn would double in 2007 to 1 million hectares (2.5 million acres).